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Wednesday, September 10, 2014

Cashier less registers, ATMs, and the minimum wage

President Obama once blamed the high unemployment on the increasing use of ATMs. If only people were still going into the bank and having to speak to a teller, there would be more tellers and thus higher employment. An interesting way to look at progress ... an 18th century way of looking at progress. Of course, the 18th century is full of technology to which President Obama wants us return, but that's another blog.

The story behind ATMs is that they provided easier access to the money in your bank account. They are located in many places and are open (when working) 24 hours a day. No longer do you have to carry lots of cash, if you need it, you can get it from the nearest ATM. Convenience, speed, accuracy, that sounds like progress to me.

The current minimum wage in Washington State is $9.32. According to the Federal Bureau of Labor Statistics (BLS), Washington State has the highest mean hourly wage for cashiers at $12.60 per hour. If the minimum wage is then raised to $15 per hour (a 62% increase), what affect would this have on the employment.

For a restaurant, the labor costs are approximately 20% of the cost. If a restaurant retains all the same employment, this increase would increase the cost of food by 12%. Suddenly, the $1 menu is now the $1.12 menu which doesn't really roll off the tongue very well. Profit margins in the fast food industry is not terribly high and can vary, but appears to be around 6% for the West region. So a 12% increase in costs would remove all profit and then some, so no business would be able to stay in business without changing their either their costs or prices.

But what about the employees. Suppose that you have a good employee that you've rewarded with pay increases and is not receiving $12.60 per hour. In order to keep the employee feeling valued, you have to create a new pay range of around $20 per hour. As for the new employee or the employee you haven't gotten around to firing yet, they get an increase to the $15 per hour.

Suddenly, labor costs become a much bigger and recurring issue. With the increases in technology, the question now becomes how can you leverage technology to reduce the number of low skill minimum wage jobs. We've already seen, and many people are already used to, the interaction with a computer terminal. Asking Siri or Cortana for information and verifying that data is becoming second nature to most people. In fact, having to interact with a human for some tasks is seen as low tech and very, very uncool.

I've already seen the sidewalk sign twirlers replaced by automatic sign movers. The question becomes how long will it take for companies to replace their cashiers with technology. The technology already exists, it just needs to suddenly become cost effective. Sudden increases in labor costs make that decision much easier.